What is an endowment plan? | Aviva India

What is an endowment plan?

While it is common knowledge that life insurance plans cover the risk of dying too early, did you know, that they can help you save too?

 

Life insurance plans come in different forms. While the term insurance policy provides unmatched protection against the risk of death, other life insurance plans are savings oriented which help you create a corpus for your financial goals. One such type of savings oriented life insurance policy is an endowment policy.

 

Let’s explore the basic tenets of the plan –

 

What is an endowment plan?

An endowment policy is a life insurance policy which covers the risk of premature death during the policy tenure. However, if the insured survives the policy tenure, a maturity benefit is paid to the policyholder.

For example, say you buy an endowment policy for a sum assured of Rs.10 lakhs and a term of 20 years. During the coverage duration of 20 years, in the case of death, a death benefit would be paid. However, if the tenure of 20 years expires and the insured is alive, the endowment plan would mature. On maturity, a maturity benefit would be paid.

Salient features of endowment plans

Some of the salient aspects of endowment insurance plans are as follows –

  • Traditional and guaranteed plans

You would find the words ‘traditional’ and ‘guaranteed’ associated with endowment plans. Let’s understand why –

Endowment plans are called traditional plans because they do not invest your premium in market-linked instruments like ULIPs do.

The word ‘guaranteed’ is often used in the context of an endowment plan because your investment is not exposed to market volatility. The maturity or the death benefit is guaranteed even when the markets are volatile.

  • The added benefit of bonus and other additions

Endowment plans can be issued as participating or non-participating policies. Participating policies are those that participate in bonus declarations while non-participating plans do not. The rate of bonus depends on the profits earned by the insurer. The bonus gets accumulated every year if you pay the premium without fail. The accumulated bonus is, then, paid either with the death benefit or with the maturity benefit.

Besides bonus, many endowment plans also offer different types of additions like guaranteed additions, loyalty additions, boosters, etc. under both participating and non-participating variants. These additions further enhance the corpus and help you earn better returns.

  • Possibility of whole life protection

Nowadays, endowment plans have evolved to provide protection up to 99 or 100 years of age. Such plans are called whole life plans and they ensure lifelong protection. You pay premiums up to a limited period and the plan continues to run till you reach 99 or 100 years of age.

  • Lump sum pay-out on death or maturity

Usually, endowment life insurance plans pay a lump sum benefit on early death or after the plan matures. The benefit comprises of the sum assured and any bonus or other additions offered by the plan. However, some endowment plans might give you the flexibility of availing the maturity or death benefit in instalments or partly in lump sum and partly in instalments.

  • Optional riders

Lastly, almost all endowment plans comes with optional riders that help in enhancing the coverage of the policy. You can choose from the list of available riders and customise your coverage as per your needs.

Benefits of an endowment policy

An endowment plan can be a good addition to your portfolio for the following reasons –

  • Guaranteed Death Benefit along with Maturity Benefit

First and foremost, an endowment plan becomes a popular choice because of the returns that it promises. The sum assured is the minimum guaranteed benefit that you receive from the policy. Moreover So, if you want returns and avoid volatility risks, endowment plans can prove to be an ideal bet.

  • Wealth creation for financial goals

Endowment plans are long-term plans which help you create a corpus for your long-term financial goals. You can save in a disciplined manner during the policy tenure and create a corpus for your child’s higher education, for buying a home, for your child’s marriage, or for any other need. The bonus and other additions also enhance the corpus so that you can fulfil your financial goals optimally.

  • Insurance protection

Let’s not forget the insurance cover that an endowment plan provides. In the case of premature death, the endowment policy comes to the rescue of your family and provides them with financial assistance. You can, thus, secure your family’s finances with the help of an endowment plan.

  • Tax benefits

Endowment life insurance plans are tax-saving avenues which let you save tax on the premium payment. The premium is allowed as an eligible deduction under Section 80C up to Rs.1.5 lakhs. Moreover, the bonus and other additions as well as the maturity benefit earned are completely tax-free in your hands. So, with endowment plans, you can create a tax-efficient corpus and enjoy tax benefits on investments too.

With the range of endowment plans available in the market, you can choose a comprehensive cover too. Aviva also offers a variety of endowment insurance policies which can help you create an attractive financial corpus. Understand what is an endowment plan and its benefits so that you can choose a suitable policy for your financial needs as well.

 

AN Sep 64/22

 

 

 

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